The president of the US Federal Reserve Bank of New York said Friday the recent banking turmoil in the nation is likely to cause more tightening conditions for American economy.
“Stresses in parts of the banking system are likely to result in a tightening of credit conditions that will in turn reduce spending by businesses and households,” John Williams said in his remarks at Housatonic Community College at Bridgeport, Connecticut.
“The magnitude and duration of these effects, however, is still uncertain,” he added.
The US’ banking industry has been shaken by the sudden demise of multiple institutions in recent weeks, amid the sudden collapse of Silicon Valley Bank and Signature Bank, in addition to financial difficulties surrounding Silvergate Bank and First Republic Bank.
About the Fed’s aggressive rate hike to bring inflation down, Williams said “lags exist between (Fed’s) policy actions and their effects.”
“It will take time for all of our inflation gears to move at a pace that takes us to our 2 percent target,” he added.
While the Fed’s aggressive monetary tightening slows economic growth, Williams noted “slower growth and tighter monetary policy will likely lead to some softening in the labor market.”